ER: How to specialise in a sector in 6 months?

I'm a buy side equity analyst with a private equity for about a year. My boss and I have discussed that in the interest of both the fund and myself I should try to specialise in an industry/sector over the next six months. Our chosen industry is infrastructure.

My next action is to devise a six month plan to become a specialist in this industry, and the goal is to know "better than the management themselves" about their businesses and the sector. I'm a bit perplexed as to what is involved to acquire such high level of knowledge.

For those of you who have become specialists in a certain industry, what do you think are the most helpful things you've done to become an expert analyst in that industry?

Comments (17)

I'm a generalist and look at most companies in most industries excluding biotech and financials. That said, I know about six industries really well. The reason that is possible is because there are only a handful of things that really matter for any particular industry (and by extension, company) in terms of drivers, maybe 2 to 6 per industry. The 10th most important thing isn't going to move the needle like the 2nd most important thing, whatever that may be. So as obvious as this sounds, figure out what the big drivers are and then learn everything you can about those -- history, outlook, trends, leading indicators, risk factors, etc. If you have access to Thomson or research on Bloomberg, look up the relevant public companies and read through the initiation reports and major research going back 5 or 10 years (you can ignore the quarterly reports since those are worthless).

I don't follow infrastructure companies (because many of them are super shitty and low transparency -- publicly traded Civ E companies, for example). That said, if I were you, I would start by getting my arms around the most important issues, which are sure to center on topics like federal spending outlook, various infrastructure themes (the aging power grid, green power, etc.). Infra is extremely broad, so try to find out which areas you are going to be accountable for and then narrow it down. Find all of the public companies and familiarize yourself by reading their presentations and annual reports, and try to become tangentially familiar with any large private players (read websites, etc.). Track down the industry pubs online or in print for those areas, read the macro data, see if you can find some blogs and get up to date.

After you get on base, you might want to start building a network of people in the industry -- I usually start with any industry groups and drop a cold call or email. They may be able to point you towards something or someone helpful. This is easier than it sounds, because a lot of people are interested in shooting the shit about industry buzz with a "Wall Street insider." Don't be a douchebag and play that up too much, but don't be afraid to be confident even if you are new to the industry -- people will assume that if you have a title like "Analyst" that you will probably know what you are talking about (even if that is an entry level title or whatever -- they don't know that). You can preface the conversations by saying, "I've done a lot of work on this industry (then drop a few buzz words), but I have some specific questions about X Y and Z, which it looks like you're an expert on (whatever is relevant to who you are talking to) -- can you spare 10 or 15 minutes?" Flatter them a little without being cheesy and they will usually open up -- if the call is interesting to them, you can often get 30 or 60 minutes of their time, though conversely, if you are a tard and ask stupid questions, you will usually get shoo'd off the phone -- if that happens, figure out why and then don't do it again. Conferences are also a good way to network like this if your fund has a budget for that sort of thing.

It's definitely doable within six months if you have a focus. Although this might be a surprising statement, a lot of managers (CEOs especially) don't always know THAT much about their industries. They know what they focus on, what drives their business, and how to keep the wheels from falling off. Most of them are not visionary geniuses, and some of them are dipshits, to be blunt. Obviously, the larger the company, the better the talent running it. If you're looking on the small cap end of the market (public or private), it wouldn't be that unexpected for you to know more about the company and its outlook than the people running it (that has happened to me several times in the industires I know well).

Hope that helps. Feel free to ping me with any ideas or questions. Good luck.

Call up the IR departments of the companies you are looking to cover and ask them if you can meet with them and have a tour. A lot of the companies like hosting potential buy side investors because it means more visibility for them if their a small/medium size firm (aka sub $2bn mktcap). Also does your firm have any relationships with the sell-side? Try talking to them to help yourself out. If you're a voting member of II or extel they'll help you some what as it will be more votes come marketing season.

I'm a generalist and look at most companies in most industries excluding biotech and financials. That said, I know about six industries really well. The reason that is possible is because there are only a handful of things that really matter for any particular industry (and by extension, company) in terms of drivers, maybe 2 to 6 per industry. The 10th most important thing isn't going to move the needle like the 2nd most important thing, whatever that may be. So as obvious as this sounds, figure out what the big drivers are and then learn everything you can about those -- history, outlook, trends, leading indicators, risk factors, etc. If you have access to Thomson or research on Bloomberg, look up the relevant public companies and read through the initiation reports and major research going back 5 or 10 years (you can ignore the quarterly reports since those are worthless).

I don't follow infrastructure companies (because many of them are super shitty and low transparency -- publicly traded Civ E companies, for example). That said, if I were you, I would start by getting my arms around the most important issues, which are sure to center on topics like federal spending outlook, various infrastructure themes (the aging power grid, green power, etc.). Infra is extremely broad, so try to find out which areas you are going to be accountable for and then narrow it down. Find all of the public companies and familiarize yourself by reading their presentations and annual reports, and try to become tangentially familiar with any large private players (read websites, etc.). Track down the industry pubs online or in print for those areas, read the macro data, see if you can find some blogs and get up to date.

After you get on base, you might want to start building a network of people in the industry -- I usually start with any industry groups and drop a cold call or email. They may be able to point you towards something or someone helpful. This is easier than it sounds, because a lot of people are interested in shooting the shit about industry buzz with a "Wall Street insider." Don't be a douchebag and play that up too much, but don't be afraid to be confident even if you are new to the industry -- people will assume that if you have a title like "Analyst" that you will probably know what you are talking about (even if that is an entry level title or whatever -- they don't know that). You can preface the conversations by saying, "I've done a lot of work on this industry (then drop a few buzz words), but I have some specific questions about X Y and Z, which it looks like you're an expert on (whatever is relevant to who you are talking to) -- can you spare 10 or 15 minutes?" Flatter them a little without being cheesy and they will usually open up -- if the call is interesting to them, you can often get 30 or 60 minutes of their time, though conversely, if you are a tard and ask stupid questions, you will usually get shoo'd off the phone -- if that happens, figure out why and then don't do it again. Conferences are also a good way to network like this if your fund has a budget for that sort of thing.

It's definitely doable within six months if you have a focus. Although this might be a surprising statement, a lot of managers (CEOs especially) don't always know THAT much about their industries. They know what they focus on, what drives their business, and how to keep the wheels from falling off. Most of them are not visionary geniuses, and some of them are dipshits, to be blunt. Obviously, the larger the company, the better the talent running it. If you're looking on the small cap end of the market (public or private), it wouldn't be that unexpected for you to know more about the company and its outlook than the people running it (that has happened to me several times in the industires I know well).

Hope that helps. Feel free to ping me with any ideas or questions. Good luck.

I don't have access to Bloomberg or Thomson so where can I go to get these initiation reports? Also why do you think ignoring quarterly reports and reading focusing on the annual instead is ok?

Clever got me this far
Then tricky got me in
Eye on what i'm after
I don't need another friend
Smile and drop the cliche
'Till you think I'm listening
I take just what I came for
Then I'm out the door again

I'm a generalist and look at most companies in most industries excluding biotech and financials. That said, I know about six industries really well. The reason that is possible is because there are only a handful of things that really matter for any particular industry (and by extension, company) in terms of drivers, maybe 2 to 6 per industry. The 10th most important thing isn't going to move the needle like the 2nd most important thing, whatever that may be. So as obvious as this sounds, figure out what the big drivers are and then learn everything you can about those -- history, outlook, trends, leading indicators, risk factors, etc......

Hi Ravenous, thanks heaps for your thorough reply! That was really helpful and I think I now know what to do next. Could you please give some examples of what you think the key drivers could be for:

Great post by Ravenous. To me the best use of sell-side research is getting up to speed on a new industry. Another great resource is GOOD MD&A (which can often come from foreign issuers). I have a handful of companies who put out really good commentary which I read every quarter whether we have a position or not.

TDYang, Gibsons (a Canadian midstream energy company, GEI.TO) puts out pretty good MD&A that touches on the trends for their business which includes gas and oil pipelines and other hydrocarbon logistics businesses.

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.

I don't have access to Bloomberg or Thomson so where can I go to get these initiation reports? Also why do you think ignoring quarterly reports and reading focusing on the annual instead is ok?

Ask someone who has access to Bloomberg to download them for you. You can also do PDF search on google for specific companies and quite possibly some research reports will come up. Your school should also have a database for reports. Remember, you want initiaion reports, not qtrly.

Definitely read the sell-side ER reports, annual reports, quarterly press releases and earnings call transcripts. gather as much industry info, macro trends, competitor info, etc. You should be good, 6 months is plenty of time to get a good grasp of an industry, especially one as simple as infrastructure.

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